Rising Re may crimp wage hikes

Mumbai: India’s software and service export industry is divided on likely wage hikes for employees in the next fiscal year.

The country’s largest software and services exporter Tata Consultancy Services Ltd (TCS) says that the wage increase next year would be lower but the second largest company Infosys Technologies Ltd says it “sees no sign for decrease” in wages.

The profit margins of these and other Indian technology firms are declining along with the appreciation of the rupee vis-a-vis the dollar as the bulk of their earnings is in dollars.

In the past year, the rupee has appreciated 12.5% against the dollar. According to analysts, a 1% appreciation of rupee brings down the operating margin of Indian information technology firms by 30-40 basis points. One basis point is one-hundredth of a percentage point.

The US currency’s slide against the Indian unit dents the revenues of IT firms as their dollar receivables from exports yield a lower equivalent of local currency. In such a scenario, lowering annual wage hikes would help the companies save significant money even as they continue to improve employee utilization and hedge the currency.

Mid-sized and small companies also expect a lower wage hike for the employees as they claim that improving utilization level has impacted the demand for such professionals in the last three months.

“We are putting excess people to use as the profitability dropped,” said R. Srikanth, chief financial officer of Chennai-based Polaris Software Lab Ltd. The company is targeting to improve utilization by 200 basis points every quarter and expects to take it to 80% by the end of this year.

“The strategy to create a capacity and sell it to clients is not in practice currently,” said Ramesh Reddy, CFO of Hyderabad-based small size company Cambridge Technology Enterprises Ltd. “The recruitment now is only demand-led.”

Amar Chintopanth, chief financial officer of 3i Infotech, a mid-size IT firm here, also has a similar view. “Recruitment has slowed down (though) it is not possible to quantify it,” he says.

TCS, India’s largest private sector employer with some 100,000 employees, last month said that the wage increase for Indian employees next year would be lower than this year’s 12% to 15%. The company did not quantify the level but said it would also impact the salary of fresh recruits.

“The demand-supply ratio is stabilizing,” said S. Padmanabhan, executive director, human resources at TCS after the company reported its quarterly results in October. “Wages will definitely stabilize across the industry.”

According to an estimate of TVA Infotech, a Bangalore based human resource consultancy firm, some 100,000 IT professionals change jobs every year, while about 100,000 join the industry.

“Generic hiring, in anticipation of projects, was the real demand by the services company,” says Gautam Sinha, chief executive officer, TVA Infotech. As a result of which some companies had 25-30% of staff awaiting projects. Hiring is now expected to decrease as companies try to “take utilization up to 85%,” says Sinha.

But, while he expects less hiring for experienced professionals, he isn’t anticipating the demand for freshers going down.

However, Infosys Technologies, India’s second largest employer in the IT industry, says there is no sign of demand slowing. “As of today, there is no indication if wage increase next year will be different than this year,”said M.D. Pai, director, HR, for Infosys.